01-Jun-2010

Messing Up The Present For The Future

Commodity futures are supposed to help producers (e.g., farmers) and consumers of commodities to hedge against price changes. But of course that is not how it is working. From Business Line:

An official probe by the US Senate found “substantial and persuasive evidence” that non-commercial traders pushed up futures prices, disrupted convergence between futures and cash prices and increased costs for farmers, the grain industry and consumers.

And:

A study by Christopher Gilbert (‘Speculative influences on commodity futures 2006-08', UNCTAD Discussion Paper No 197, Geneva) has found that index traders amplified price volatility to the extent of 30 per cent in oil and metals prices and around 15 per cent in foodgrains prices.